Negative Gearing Explained: A Plain English Guide for Australian Investors

What is negative gearing?

A property is negatively geared when the costs of owning it exceed the rental income it generates. The 'loss' is the difference between what you earn from the property and what you spend on it.

For example: if your investment property earns $36,400 in rent per year but costs $67,000 to hold (mortgage interest, management fees, rates, insurance, depreciation), you have a net rental loss of $30,600. This is negative gearing.

What is the tax benefit?

Under the current rules (for grandfathered properties), this $30,600 loss can be deducted against your other income — including your salary. If you earn $150,000 and have a $30,600 rental loss, your taxable income is reduced to $119,400. At the 47% marginal rate, this saves you $14,382 in income tax.

This is the 'tax benefit' of negative gearing — it reduces your income tax bill in the year the loss occurs.

Is negative gearing always beneficial?

Not necessarily. You're still making a cash loss on the property — you're spending more than you earn. The tax saving reduces the loss, but doesn't eliminate it. Negative gearing only makes financial sense if you expect the property to appreciate in value enough to offset the ongoing cash losses.

For a property to be a good investment while negatively geared, the capital growth needs to exceed the after-tax cost of the losses over the holding period.

What changed in the 2026 Budget?

From 1 July 2027, negative gearing for established residential investment properties purchased after Budget night (12 May 2026) is restricted. Losses from these properties can only be offset against other residential property income — not against salary or other income.

Properties held before Budget night are exempt from this change. New builds are also exempt.

What are quarantined losses?

For established properties purchased after Budget night, rental losses are 'quarantined'. They don't disappear — they carry forward indefinitely. But they can only be used when you have residential property income to offset them against.

This means the immediate tax benefit of negative gearing is eliminated for new established property purchases. You still accumulate the losses, but you can't use them to reduce your salary tax until you have property income or sell the property.

How to track your quarantined losses

If you own a post-Budget-night established property, it's important to track your quarantined losses carefully. They will eventually be used to reduce your CGT when you sell. ClearGain's Property Expenses tracker automatically identifies quarantined losses and generates a Quarantined Losses Report for your accountant.

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